Posted: 17 Nov 2022 by Poppy Gardner

The German Supply Chain Act 2023​

German Supply Chain Act​

On the 1st January 2023, the German Supply Chain Act (GSCA): Lieferkettensorgfaltspflichtengesetz (LkSG), will come into effect. This law will compel companies with over 3,000 employees to identify and mitigate the sustainability and ESG risks within their supply chains.

And as of 2024, the German parliament will extend this law to the same categories of companies with 1,000 or more employees; tightening compliance even further.

The law is a progressive move towards improving Germany’s corporate impact on human rights and the environment. It will not only apply to German-based companies but also German-registered branches of foreign companies that have 3,000 or more employees.

 

Any violations to human rights and/or the environment could potentially hold these companies liable for a fine of up to €800,000 or two percent of their annual global turnover.

Going even further, companies in violation could also be exempt from winning lucrative German business contracts for a three year term.

Preparation is Key

If your business operation is set to fall under this new law, there are a number of key steps you may wish to take. Particularly when laws like this are widely considered to be the start of more to come.

Legislation towards achieving responsible sourcing and sustainability will become an everyday fixture of doing business.

Visibility and Gathering Data

The key to identifying risks in your supply chain is being able to see them in the first place. After all, you can’t mitigate risks that you’re blind to. So businesses should look to map their entire supply chain rigorously. With visibility over your supply chain, you can earmark all the risks that may be in violation of the new law.

 

Once you’ve established where the risks are, it’s crucial that you’re able to compile a comprehensive set of data to work with. Having reliable data will allow you to accurately score each risk in line with the new due diligence laws to see where your biggest exposure to risk may be.

For instance, certain off-shore suppliers in developing countries could potentially be at a higher risk of breaching human rights and modern slavery laws.

 

Setting goals

The new due diligence law asks for companies to publish an annual report that details the specific improvements the company will make on the risks they’ve identified. Only with an accurate set of KPIs and data can you compile a set of pragmatic ESG goals for this report.

Technology can be a powerful tool in presenting your data clearly and transparently. An intuitive dashboard can show how your company’s ESG profile is meeting the required compliance and how your brand is performing against the UN 17 SDGs.

Consultation

The impending law requires a swift response. To expedite the process and learning curve, a company will look to buy in an experience-oriented knowledge base.

ESG experts can help companies to better understand their gathered data and risk management requirements within a supply chain. Such experts are also fully up to date with laws and various other governance in regards to ESG compliance. A worthwhile investment in light of the news laws.

 

STAR Index empowers your business to identify Sustainable, Technical, Asset and Responsible-sourcing risks across supply chains. The results of STAR Index will promote your CSR program, enhance your ESG profile and protect your business from being in violation of corporate due diligence laws.

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